ISB&M - International School of Business & Media

Chitesh Sanoria (16045)

Kushal Tanna (16031)

BRAND FACTORY
Retail Business has in recent times catapulted itself into the top growing industry in India. Today in most
cities one can see these Retails Business giants penetrating even into lanes and by lanes. There many
bigwigs who have made a successful foray into this market. This market is contributing a huge10 per cent
to the GDP of our country. In terms of providing employment, retailing in India stands at about eight per
cent and is winding its way to become the next boom in the industry. The current scenario in the retail
sector in India is projecting wide expanse in sizes and shapes metamorphosing into shopping complexes,
malls, huge complexes nick named multiplexes offer shopping bonanza, entertainment galore and wide
food spread; all in one court that was hitherto known only in advance economic countries. The world of
shopping has undergone a sea-change in terms of layout and consumer behavioral pattern, bringing in a
welcoming an almost rebellious shopping in India. Gone are the days when you interacted with the typical
street corner grocery shop-keeper across the counter. You now have the liberty to see, touch, feel and
compare the wider range of products and make selection of your choice. This has created a new activity
for the family shopping under one- roof and coming back satisfied apart from the sojourn contributing to
enjoyment to some extent. The advent of Retail Business has cascaded other businesses such as the
real estate. The requirement of vastness of infrastructure for the Retail business has indirectly catapulted
business of Real estate, resulting in unimaginable scale of investments. The real estate sector saw a
massive domestic and International operators flushing finance in the development of the infrastructure
and buildings to cater to the needs of the Retail business.
The driving force contributing to the growth of the Retail business in India is several. They are[1] Underdeveloped Retail business limited to a few businessman bringing the concept of the west to
India
[2] Drop in real estate prices
[3] Sudden improvement of spending power in the hands of the consumer especially in the Middle
Income group
[4] A gradual shift of several luxury products becoming products for minimal comfort due to living
standard of living and habits.
The tremendous increase in the youth segment of our ever increasing population, bringing in the much
wanted changes and fresh outlook in life is a major factor. The advent of IT industry ushered in much
higher home take income which could not be dreamt by even the parents of the youth whose purchase
power took a quantum leap. The breaking up of Joint families into nuclear ones in the cities and towns,
increasing new trend of the women taking up to working alongside men led to the raising of tremendous
opportunities in the services and retail sectors.

These are some of the prime contributory cause leading to growth of an organized retail sector in India.
Retail business in India currently prides itself in promoting almost all personal preferences in life. To name
some of them
Clothing and Textiles especially apparels & accessories
Consumer appliance
Electronics gadgets,
Cosmetics and Toiletries Products for Home & for the Office,
Travel and Leisure etc.
For ages, centuries have seen the good old Grocer in the neighborhood; the advent of the Retail segment
in India is witnessed a metamorphic addition and expansion. One should not forget that the good old
Grocer shops have not disappeared as lot of pundits had predicted. The torrents of sleek supermarkets
have not made a great dent in the Indian evergreen traditional retail markets. Departmental blocks,
Supermarkets, Hypermarkets and Specialty stores are the new formats in the Retail segment that have
been welcomed whole-heartedly by the ever increasing population, especially the youth who are constant
are on the lookout for change.
The structure of the Retail market in India has liberalized to include sever verticals in differing formats
catering to their respective target clients. The cities fast lanes and bye lanes are dotted with shopping
malls and multiplexes giving them the look of modernity and coming of age especially the large cities.
With all the major cities having been saturated, the avalanche of the Retail segment has penetrated the
Tier II cities which are fast catching and are not lagging far behind in the race.
Statistics obtained on running and developmental plans up to 2007 reveals a extrapolation of about 220
shopping malls, consisting of 140 of them in the metros and the remaining 80 in the Tier II cities. The
State governments of the states of New Delhi and National Capital Region (NCR) are extremely excited in
allotting land for Retail Commercial infrastructure development, thereby making availability of additional
land for retail segment; thus making NCR contribute to 50% of the malls that have come up. Graphics
highlights of this study of India Capital City and its surrounding II tier cities are given below: Explanation:
While Delhi being the capital first forayed into the Retail Market.
The advent of this development in Delhi also followed suit in the II tier cities, some of them even
surpassing it. The Global players are eying India as a growth potential goldmine for investment in Retail
business. Current survey has ranked India as the most happening destination for Retailers segment in
magnetic growing Retail market. India's bludgeoning middle class that is seen as a virgin, untapped
market in the Retail industry is in the eye for entry for the global Retail bigwigs. While India boasts of over
5.1 million Retail outlets, the segment is loaded with small timers scattered as to the convenience of the
Retail owners. This lop-sided market is an ensemble sans the grandiose of large sized operators like
multiplexes, hypermarket and the like. This scenario offers on platter huge scopes of great opportunity of
business for the Global retailing specialists. The structured retail sector is slated to out grow stronger than
GDP in the coming decade chiefly driven by fast and ever changing lifestyles, burgeoning pay-packet and
favorable distribution pattern of the Retail market.
Another major feather in the cap of the Retail industry in India is allowance of 51% FDI in each brand
outlet. A second series of reforms, the government is now mulling is to initiate in this segment is further
liberalizing the norms for investment. This goes a long way in favor of the retail segment's growth in terms
of design perception, building quality and affording modern facilities and also helps nurturing a consumerfriendly situation.
Retail business in India is at crucial juncture yet the future for the consumer markets is promising high
potential for growth. Governments policies are increasingly becoming favorable coupled with emerging

technologies are making it conducive for operations in and out of India. This upsurge in the retail business
has put India as a dream destination for retail investors and has also catapulted simultaneously as
corollary to the Retail business compelling investments in the Real Estate sector.
For the general global investors who cautiously test the Indian Markets for investments, domestic
companies and joint ventures in the retail segment are seen to be more favorably juxtaposed than the
stand-alone foreign operators in the emerging structured retailing business.

Competition
The Brand Factory format has no direct competition.
Brand Factory, the year-round fashion discount chain offers between 20% and 70% discount on
merchandise from leading Indian and international brands. A part of Kishore Biyani-promoted Future
Lifestyle Fashions Ltd (FLF), it has an annual revenue of around Rs 1,500 crore and the outlets will
contribute almost 30% to FLF's overall revenues of around Rs 5,000 crore in fiscal 2016. Already
profitable, it is expected to clock-in Ebitda growth of around 9%. Earlier this week, the management made
a big splash opening four stores and taking the total to six outlets in Mumbai. On the sidelines Suresh
Sadhwani, business head, Brand Factory, spoke to Ashish K Tiwari about the company's business,
competition, and challenges from the e-marketplaces and so on.
What is the brand proposition of this retailing format?
This format caters to the aspirational consumers including men, women and kids looking for branded
merchandise at affordable prices. In fact, we are the only fashion store in India with premium,
international, national and regional fashion brands at 20% to 70% discounted prices. And the best part of
this format is the consumer doesn't have to wait for the 'sale' season because discounted merchandise is
sold in these stores throughout the year, which is the most unique aspect. In terms of fashion labels in our
stores, we have 200 brands making apparels for us including US Polo, Levis, Lee, Wrangler, Flying
Machine, Nike, Fila, Louis Phillipe, Turtle, Cool Colours, Allen Solly and Gini & Jony.
How competitive is this space, given the potential in the format?
There was Bangalore-based garment chain called Coupon which we acquired in 2013. So in that sense,
we don't really have direct competition in this format. While I don't want to name them, there are few
claiming to be discount chains, but they are not. That's because they are dealing in export surplus
merchandise. The customers are never sure of the price they are paying for such products. Whereas in
our case, it's all branded merchandise with branded price that gives the buyer a clear idea on the
discounts being offered.
You've launched six stores in Mumbai. What is the total footprint like at present and where do you
see it heading by the end of this fiscal?
The discount chain is currently present in 20 cities across 46 stores. We have been continuously growing
footprint, just that we have been stronger in south India and started moving to north at a later stage. The
plan is to take this number to 55 stores by March 2017.
New Challenges
Brand Factory, is putting up an unaffected front. While e-commerce portals spread an unease among
offline retailer of all colors and stripes, Brand Factory's business head, Suresh Sadhwani, says that an all-

year discount chain is better placed than portals to win at the discounting game. "The market is too big
(for us) to be affected by online sales. Besides, Indian customer still wants to come and experience the
product, that's where we matter," Sadhwani says. He says that Brand Factory, would not, in fact, look to
sell online. Competing with the likes of Arvind's Megamart and Loot, it follows the model of selling
branded apparel and accessories that find their way to these formats after the biannual sales in regular
multi-brand and single-brand stores. Besides discounting brands between 20 and 50 per cent, it also sells
its own private labels.
Why Brand Factory's discounts strategy is flawed
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Value proposition: The deep discounts, ranging from 20 - 70%, are compelling for discount
seekers and young upwardly mobile people who aspire for these brands but do not have disposable
income. It also acts as a bridge to get non-brand users to graduate to fashion brands.
But there's a drawback. Customers will come to the stores as long as the discounts are best in town. As
soon as a competitor offers better discounts, they are likely to shift loyalty. Recent events seem to support
this view. Flipkart, Myntra, Snapdeal, Jabong and others attracted customers in droves predominantly by
advertising the deals (deep discounts) and building a customer base of millions of buyers. Unfortunately,
the loyalty was not to them but to the discounts they offered. Now that they have to stop offering steep
discounts, their sales may head south. Of course, there is a crucial difference between e-commerce
companies' strategy and Brand Factory's. The former funded part of the deep discounts from their own
pockets, burning a hole in their profit and loss statements (P&L). The hole became bigger because they
spent astronomical amounts advertising it. Brand Factory also offers deep discounts, but without burning
a hole in its P&L, because it does not fund it-it merely passes on the discount it has obtained through
smart sourcing and skillful negotiation. However, it has not eliminated the disease from the root-the loyalty
of its customers could be to the discount it offers and not to the brand. This has the power to cripple it.
Competitor-obsessed: Brand Factory has to be competitor obsessed to ensure that no
competitor offers better discounts. This means it always faces the competitor while its back is to
customers. The world's most admired and valuable companies are customer-obsessed. They keep their
customers at the center of their strategy and build a plan around serving them. That is what makes them
successful over extended periods of time.
Quality of merchandise: It will be driven by opportunistic buying of non-moving, leftover,
damaged, odd sizes merchandise which a brand owner may be wanting to offload. Hence, the
merchandise stocked at Brand Factory will not be what customers want but what the purchase team can
procure at a deep discount.
Business model: Brand Factory offers a choice of over 200 brands under one roof-like a
department store. But department stores across the world are facing challenging times because a
customer looking for, say, Nike shoes, would prefer to shop for it in a company-owned store where she
can expect more options and a genuine Nike experience.
Similarly, many of the marquee brands Brand Factory houses also have company-owned stores, both
online and physical stores, through which they sell their non-moving merchandise at deep discounts.
Gross merchandise value (GMV): Brand Factory claims to have a GMV of Rs 4,000 crore. But
is this the metric that it should be showcasing? Has not the mindless pursuit of GMV got many marquee
e-commerce companies in hot water? GMV does not give an indication of the quality of sales-it measures
the sales clocked, which can be "managed" by "buying" it, i.e. by offering irresistible discounts.
A timeless business axiom advises us that what gets measured gets done-if GMV is being measured then
it will be pursued at all cost, leading to GMV myopia. Flipkart is experiencing the consequence of pursuing
this metric at the cost of others .Instead, Brand Factory should focus on customer-centric metrics: Net
promotor score which measures brand advocacy, customer satisfaction score, repeat purchase rate,
customer retention rate and referral rate. If these metrics are positive, it would indicate that customers are
happy with the brand. As a result, the "outcomes", or business parameters like revenue, margin etc. are
most likely to be robust.
Asset-heavy business model: In today's on-demand economy (also referred to as sharing
economy) it pays to operate an asset-light model. Brand Factory's business model appears to be assetheavy. It requires investment in setting up bricks-and-mortar stores as well as cash for buying
merchandise.

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Operating in red ocean space: Brand Factory derives significant revenue from apparel brandswhich operate in what is known as red ocean space, or crowded markets where the competition for
market share is intense. Furthermore, the apparel industry is facing a problem of its own making. A
majority of sales of even fresh stock takes place only when it is on sale. So, the apparel industry takes a
steep price increase so that even after parting with eye-popping discounts multiple times a year, its
bottom line is not severely dented. A dented brand image is the collateral damage. If the industry does not
change its strategy, over time brand image will be so severely damaged that brand owners will not be in a
position to take a price increase or pull in customers. Profit, which is already low, will sink further. Brand
Factory's profitability too will suffer as this scenario starts materializing.
What is the future of Brand Factory?
It may face the same future as e-commerce companies that "bought" revenue by offering deep discounts,
burning a hole in their P&L.
The saving grace is that Brand Factory is not putting money from its own pocket to offer deep discounts.
Where will Brand Factory rock? Most likely in Tier 2 and 3 towns where marquee brands command
aspirations but have not yet opened their own stores. In such towns, Brand Factory could be the only
option for customers.
But even this is risky because "...by 2020, nearly half the internet users would be from rural areas and
tier-4 towns (with population under 100,000)," Mint reports. People residing here too will opt for online
company-promoted stores to get deals and bargains, bringing Brand Factory's reason for existence under
scrutiny.
What Brand Factory ought to do
Brand Factory could take inspiration from Walmart and pivot its business model to make it more robust,
enduring and profitable.
Walmart ranked No. 1 in the Fortune 500 list (2015) and clocked a revenue of $482 billion. It grew by
offering "Everyday Low Price" (EDLP), but by 2007 it had replaced this promise with "Save money. Live
better."
Why? Because price is a feature and shoppers do not buy features, they buy benefits. In neuro marketing
terms, features such as price appeal to the neo cortex part of the human brain, where rational and
analytic thinking reside. But when a company offers a benefit, it touches the limbic part of the brain where
emotion and behavior reside. When a brand touches emotions, a person's behavior towards the brand
changes positively. Once this happens, the brand can offer rational reasons for buying-price and discount.
Location Decisions
The geographic distribution of production facilities, stocking storage centers and sourcing centers are the
basic starting point in formulating a 'Supply Chain'. The location in terms of availability of facilities requires
a commitment of resources on a long-term basis. When the size, number, and location of these are firmed
up it paves the way for suitable chain flow by which the product reaches the end user. These decisions
are crucial to an establishment since they ultimately lay the foundation for a strategy to access customer
markets, and will have a telling impact on income, cost, and efficiency of service. Determination of these
decisions depends on optimizing routine functions that has a bearing on manufacturing l& distribution
costs, duties & duty drawback, tariffs, taxes, domestic content, unavoidable limitations in production, etc.
(See Arntzen, Brown, Harrison and Trafton [1995] for reference.) Decisions on Location, though are
primarily strategic, they have far reaching implications at the operational level.
Production Decisions
What products to produce, seems a simple question but the most crucial factor forming part of the
strategic decision making that include which plants to produce what products. This will also serves as the
guiding factor for allocation of suppliers to plants, plants to Distribution Channels [DC], and DC's to end
user markets. These decisions nevertheless have a huge bearing on the revenues, costs and levels of

service to the end user of the establishments. Decisions are always taken on the presumptions of the
availability of the resources and facilities and thereby determine the precise pathways for flow of product
to and from the centers offering the required facilities. The second critical factor concerns with the
capacity to manufacture the required facilities--and this again primarily depends on the level of vertical
integration internal to the establishment. Decision making on operations takes into consideration the
detailed production scheme. Master production construction chart, Machine functioning chart, Plant
maintenance chart are some of the result from Production decisions. Still other decisions to take are on
workload balancing, and quality control procedures at a production centre.

Supply Chain Modeling Approaches

It is but obvious that, both Location and Production decisions mentioned above need entirely different
thought and plan perspective. The totality of the entire establishment is to be considered in strategic
decisions for an all-encompassing effect that leads the way for integrating different aspects of the 'Supply
Chain'. This obviously brings to the selection different models that are ascribable to the decisions are
enormous, and require a large volume of data processing. These models provide approximate solutions
to the decisions they describe often due to the large volume of data requirements, and to the wider scope
of decisions. Meanwhile, the operational decisions cater to the day-to-day operation in the 'Supply Chain'.
Here the models that cater to them are often obviously specific to the production requirement. The limiting
perspective of these models quite often is dealt in minute details to provide effective if not optimal
solutions. For better understanding of the process of selection and understanding of the models, a precise
study of the literature, and simultaneously an attempt to include the above contradictory nature in the
models, modeling approaches are classified into three types
Network design methods: This method mostly provides normative models for extensive strategic
decisions. Primarily, these models include four major decision areas as mentioned earlier and aim for
more on the designing part of the 'Supply Chain', establishment of the network and the correlated flows
on them.
Rough cut methods: This method, as different from the Net work design, provides policies as guidelines
for the operational decisions. These models primarily presume a "single site" in other words ignore the
network and adds 'Supply chain' characteristics to it, for example they clearly consider the site's relation
to the network's others segments.
Simulation methods: This is a method in which an exhaustive 'Supply Chain' model can be analyzed,
consideration both the Strategic and the Operational decisions. There is however a word of caution that
this is same for all simulation models; so evaluations are effective limited to pre-specified policy rather
than for development of fresh a policy. "What If?" versus "What's Best? is the age old tussle that needs to
be tackled.
Conclusion for Logistics --Currently most retailers in India comprise majority interested in the front end,
but in comparison few are on the back end and 'Supply Chain. Yet in countries like the USA, Germany
and England, where structured retail is highly developed; 'Supply Chain' efficiency is a major drawback
The track in retail segment of India is different from other global countries. The organized retail segment
in India is badly fragmented and they face a huge deficiency in the 'Supply Chain. The Future group in
India obtains sizable economy in scale in managing their supply chain. Dealing in excess of 170000
products, the company enjoys in a partnership mode, a massive supplier relationship, shunning the unfair
supplier - buyer transactional philosophy. Back-end operations are IT enabled and 'Supply chain'
management improves consistency and effectiveness of the business. Future Group, as part of the
operation, also wants to bring down its cost of warehousing through a consolidation process. In India
almost all retail stores are situated in the city centers -where they pay very rents and yet have limited

storage space which are scarce-'Supply Chain management has grave business implications. Future
Logistics currently handles three million SKUs (or stock keeping units) per day spread across the entire
Future Group's various retail formats throughout the country. This number, by 2010, is expected to
multiply to more than 30 million SKUs a day. Even with 98% accuracy, over 600,000 products will not
reach the distribution channel correctly, consequently incur an approximate sales loss of over Rs. 4 crores
per day. Zero defect will be the biggest factor in consumer logistics in managing the 'Supply chain'. Only
way to achieve Zero defect is from vertical integration spread across the entire supply chain-from raw
material supply, production, wholesale and retail, even though infrastructure, technology, automation,
processes and people also play crucial role. The components of the 'Supply Chain will no longer be
successful in silos as they do today. Need for efficient logistics First of all we must have a quick look
across the requirement of a good logistics system in India prior to proceeding for revolutionizing in-depth
on logistics, one must: Guarantee coordination: Perfect coordination among the various segments of a
retail venture like suppliers, manufacturers, and vendors. Perfect timings: Consumers getting the right
product at the right time and at the right place must be ensured. Continuous supply: Seamless and
consistent resourceful supply to retail stores across different geographic areas is to be ensued.
Continuous growth: Sustenance in growth of retail operations in the long run must lead to achieving
profits Optimum inventory: optimize inventory levels to reduce blockage of capital and reduce wastage of
products.
Bottom line:
It would be prudent for Brand Factory to move away from offering a feature (low price) and graduate to
promising a benefit which will appeal to the customer's self-interest. This will help Brand Factory graduate
from merely having a transactional relationship with its customers towards nurturing a more enduring
relationship with them.

Brand Factory Banglore